In his Behind the Numbers report this week, David Smith, head of American insights at Cushman & Wakefield, said a negative number is a positive for the office market.
The inventory of available sublease space – previously leased office space that occupiers have vacated available for sublease – has now declined by 5.6 million square feet over the past three quarters, and more than half of all US office markets have seen a decline in sublease inventory over the past year, said Smith.
“That's a big deal because after years of businesses putting sublease space on the market, we're now seeing them take it back,” said Smith. He attributed this to more workers returning to the office and employers realizing they need the office space. Sublease inventory is typically a leading indicator for the overall office market. When sublease vacancy peaks, overall vacancy typically peaks shortly after, he said.
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The office sector is seeing other positive signs as well, including one of the strongest quarters for office net absorption since the beginning of 2020.
“In fact, Class A office absorption was essentially flat for the quarter,” said Smith. “Absorption was positive in Q4 for nearly half of all U.S. office markets, and nationwide Class A leasing activity is up 8.5% year over year, having improved from 2023 in most markets.”
In addition, supply side pressures have subsided considerably with the construction pipeline shrinking by half over the past year.
“All of these trends that we are watching very closely suggest the tide is finally turning for the office market, so occupiers and investors need to factor that into their short term and long term, real estate strategies,” said Smith.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
